Primary residence sold, qualifies for exclusion but ...

[Karen Lee]

this primary residence was a rental for a short period of time (18 mo) during the 2 out of 5 year qualification. Where is the instructions for dealing with the partial rental and depreciation recapture?

Thanks

[Pacun]

You have to know the FMV at the time when you started renting it and the FMV at the time you stop renting it.

If there is a gain during that period, then you will have to pay taxes on that gain and you will have to do the depreciation recapture.

[Elrod]

http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Capital-Gains,-Losses,-Sale-of-Home/Property-%28Basis,-Sale-of-Home,-etc.%29/Property-%28Basis,-Sale-of-Home,-etc.%29-5

[jklcpa]

Pub 523 has a section with comprehensive examples devoted to those that rent the home for a portion of the time encompassing the 5 years. That section starts on pg 16:

http://www.irs.gov/pub/irs-pdf/p523.pdf

[jasdlm]

1) In the 2008 New Housing Rescue and Foreclosure Prevention Act’, Congress disallowed for the Section 121 exclusion the pro rata portion of the gain that corresponds to any period of nonqualified use after 2008. So . . . if they rented the house for 18 mos out of the 5 years, 30% of the gain is included and not qualified for the exclusion.

2) Must pay depreciation recap. 26 USC 121 d 6 (for all depreciation taken after 6 May 1997; pre-May 1997, they are golden)

[Karen Lee]

Thank you. I have been procrastinating on this one and now they want me to finish it up. I am leaving for my aunt's funeral and will be gone for 3 days so my procrastination has now bit me. Thank you so much. My aunt and I had a very close relationship so it is very hard for me.

[NECPA in NEBRASKA]

I am sorry for your loss, Karen.

[Pacun]

1) In the 2008 New Housing Rescue and Foreclosure Prevention Act’, Congress disallowed for the Section 121 exclusion the pro rata portion of the gain that corresponds to any period of nonqualified use after 2008. So . . . if they rented the house for 18 mos out of the 5 years, 30% of the gain is included and not qualified for the exclusion.

2) Must pay depreciation recap. 26 USC 121 d 6 (for all depreciation taken after 6 May 1997; pre-May 1997, they are golden)

So, I have a house that I bought for $100K in 2010, then I rent it for 2 years and at the end of those two years the FMV of the house was $150, then I move to the house and live there for 6 years and sell it for $300K, All the gain will be wiped but I will ONLY do depreciation recapture, correct?

[kcjenkins]

Thank you. I have been procrastinating on this one and now they want me to finish it up. I am leaving for my aunt's funeral and will be gone for 3 days so my procrastination has now bit me. Thank you so much. My aunt and I had a very close relationship so it is very hard for me.

So sorry to hear that. A loss that would be a stressor at any time is doubly so during tax season. I'll be praying for you.

[Catherine]

Karen -- my sympathies on your loss.

[Gail in Virginia]

Karen, that has to be hard on you and not a good time to think through complicated tax issues. I am so sorry for your loss.